As filed with the Securities and Exchange Commission on May 9, 2024
File No.
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
(Mark One)
(Exact name of registrant as specified in charter)
(State or other jurisdiction of incorporation or registration) |
(I.R.S. Employer Identification No.) | |
|
| |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities to be registered pursuant to Section 12(b) of the Act:
None
Securities to be registered pursuant to Section 12(g) of the Act:
Shares of beneficial interest, par value $0.01 per share
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of May 9, 2024, the registrant had shares of common stock, $0.01 par value per share, outstanding.
Table of Contents
i
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial known and unknown risks, uncertainties and other factors. Undue reliance should not be placed on such statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about BIP Ventures Evergreen BDC (the “Company”, “we”, “us”, “our”), current and prospective portfolio investments, industry, beliefs and the Company’s assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Company’s control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including:
● | our future operating results; |
● | our business prospects and the prospects of our portfolio companies; |
● | the effect of investments that we expect to make and the competition for those investments; |
● | our ability to raise capital; |
● | geo-political conditions, including revolution, insurgency, terrorism or war; |
● | general economic, logistical and political trends and other external factors, including the impact of the COVID-19 pandemic, related COVID-19 variants and supply chain disruptions; |
● | potential economic downturns, interest rate volatility, loss of key personnel, and the illiquid nature of investments; |
● | the ability of our portfolio companies to achieve their objectives; |
● | our current and expected financing arrangements and investments; |
● | changes in the general interest rate environment; |
● | the adequacy of our cash resources, financing sources and working capital; |
● | our contractual arrangements and relationships with third parties; |
● | actual and potential conflicts of interest with the Company’s investment adviser, and its affiliates; |
● | the elevating levels of inflation, and its impact on our portfolio companies and on the industries in which we invest; |
● | the dependence of our future success on the general economy and its effect on the industries in which we may invest; |
● | the impact on our business of U.S. and international financial reform legislation, rules and regulations; and |
● | the effect of changes in tax laws and regulations and interpretations thereof. |
Although the Company believes that the assumptions on which these forward-looking statements are based are reasonable, any of the assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict all risks and uncertainties, nor can the Company assess the impact of all factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report on Form 10-Q should not be regarded as a representation that the Company’s plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. Moreover, the Company assumes no duty and does not undertake to update the forward-looking statements.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BIP Ventures Evergreen BDC
Statements of Assets and Liabilities
March 31, 2024 |
December 31, 2023 |
|||||||
(unaudited) | ||||||||
Assets | ||||||||
Investments | ||||||||
Non-controlled / non-affiliated investments (cost of $ |
$ | $ | ||||||
Non-controlled / affiliated investments (cost of $ |
||||||||
Total investments, at fair value (cost of $ |
||||||||
Cash and cash equivalents | ||||||||
Interest receivable | ||||||||
Total assets | $ | $ | ||||||
Liabilities | ||||||||
Management fees payable | $ | $ | ||||||
Incentive fees payable | ||||||||
Accrued audit and tax fees | ||||||||
Accrued expenses and other liabilities | ||||||||
Total liabilities | $ | $ | ||||||
Commitments and contingencies (Note 6) | ||||||||
Net assets | ||||||||
Common shares, par value $ | per share, unlimited shares authorized ( and shares issued and outstanding at March 31, 2024 and December 31, 2023, respectively)||||||||
Paid-in-capital in excess of par value | ||||||||
Total distributable earnings (loss) | ||||||||
Total net assets | ||||||||
Total liabilities and net assets | $ | $ | ||||||
Net asset value per share | $ | $ |
The accompanying notes are an integral part of these financial statements.
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BIP Ventures Evergreen BDC
Statement of Operations
(unaudited)
For the Three Months Ended March 31, 2024 |
||||
Investment income: | ||||
From non-controlled / non-affiliated investments: | ||||
Interest income | $ | |||
Other interest income | ||||
Total investment income | ||||
Expenses: | ||||
Management fees | ||||
Incentive fees | ||||
Professional fees | ||||
Board of Trustees’ fees | ||||
Administration fees | ||||
Other general and administrative expenses | ||||
Total expenses | ||||
Net investment income (loss) | ||||
Net realized and unrealized gain (loss) on investments: | ||||
Net change in unrealized gain (loss) on non-controlled / non-affiliated investments | ||||
Net change in unrealized gain (loss) on non-controlled / affiliated investments | ||||
Net realized and unrealized gain (loss) on investments | ||||
Net increase (decrease) in net assets resulting from operations | $ |
The accompanying notes are an integral part of these financial statements.
2
BIP Ventures Evergreen BDC
Statement of Changes in Net Assets
(unaudited)
Common Shares | Paid in capital in excess |
Distributable earnings |
Total net | |||||||||||||||||
Shares | Par amount | of par | (losses) | assets | ||||||||||||||||
Balance at December 31, 2023 | $ | $ | $ | $ | ||||||||||||||||
Net increase (decrease) in net assets resulting from operations: | ||||||||||||||||||||
Net investment income (loss) | - | |||||||||||||||||||
Net change in unrealized gain (loss) on investments | - | |||||||||||||||||||
Issuance of common shares | ||||||||||||||||||||
Total increase for the three months ended March 31, 2024 | ||||||||||||||||||||
Balance at March 31, 2024 | $ | $ | $ | $ |
The accompanying notes are an integral part of these financial statements.
3
BIP Ventures Evergreen BDC
Statement of Cash Flows
(unaudited)
For the Three Months Ended March 31, 2024 |
||||
Cash flows from operating activities: | ||||
Net increase (decrease) in net assets resulting from operations | $ | |||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||
Net change in unrealized (gain) loss on non-controlled / non-affiliated investments | ( |
) | ||
Net change in unrealized (gain) loss on non-controlled / affiliated investments | ( |
) | ||
Payments for purchases of investments | ( |
) | ||
Changes in operating assets and liabilities: | ||||
(Increase) decrease in interest receivable | ( |
) | ||
Increase (decrease) in management fees payable | ||||
Increase (decrease) in incentive fees payable | ||||
Increase (decrease) in accrued audit and tax fees | ||||
Increase (decrease) in accrued expenses and other liabilities | ( |
) | ||
Net cash provided by (used in) operating activities | ( |
) | ||
Cash flows from financing activities: | ||||
Proceeds from issuance of common shares | ||||
Net cash provided by (used in) financing activities | ||||
Net change in cash and cash equivalents | ||||
Cash and cash equivalents, beginning of period | ||||
Cash and cash equivalents, end of period | $ |
The accompanying notes are an integral part of these financial statements.
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BIP Ventures Evergreen BDC
Schedules of Investments
March 31, 2024
(unaudited)
Investments (a) | Type | Interest Rate | Maturity Date | Par Amount/ Units (b) | Cost | Fair Value (c) | % of Net Assets | ||||||||||||||||
Investments – non-controlled / non-affiliated | |||||||||||||||||||||||
Senior Secured Convertible Notes | |||||||||||||||||||||||
Enterprise SaaS | |||||||||||||||||||||||
Mediafly, Inc. | Senior Secured Convertible Note | $ | $ | $ | |||||||||||||||||||
Total non-controlled / non-affiliated senior secured convertible notes | % | ||||||||||||||||||||||
Equity Investments (d) | |||||||||||||||||||||||
Healthcare | |||||||||||||||||||||||
CareSave Technologies, Inc. (d/b/a ShiftMed) | Series E-2 Preferred Stock | N/A | N/A | ||||||||||||||||||||
Total non-controlled / non-affiliated equity investments | % | ||||||||||||||||||||||
Total non-controlled / non-affiliated investments | % | ||||||||||||||||||||||
Investments – non-controlled / affiliated | |||||||||||||||||||||||
Equity Investments (d) | |||||||||||||||||||||||
Healthcare | |||||||||||||||||||||||
Peregrine Health, Inc. | Series A-2 Preferred Stock | N/A | N/A | ||||||||||||||||||||
Total non-controlled / affiliated equity investments | % | ||||||||||||||||||||||
Total Investments | $ | $ | % |
a. |
b. |
c. |
d. |
The accompanying notes are an integral part of these financial statements.
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BIP Ventures Evergreen BDC
Schedules of Investments
December 31, 2023
Investments (a) | Type | Interest Rate |
Maturity Date |
Par Amount/ Units (b) |
Cost | Fair Value (c) |
% of Net Assets |
||||||||||||||||
Investments – non-controlled / non-affiliated | |||||||||||||||||||||||
Senior Secured Convertible Notes | |||||||||||||||||||||||
Enterprise SaaS | |||||||||||||||||||||||
Mediafly, Inc. | Senior Secured Convertible Note | $ | $ | $ | |||||||||||||||||||
Total non-controlled / non-affiliated senior secured convertible notes | % | ||||||||||||||||||||||
Investments – non-controlled / affiliated | |||||||||||||||||||||||
Equity Investments (d) | |||||||||||||||||||||||
Healthcare | |||||||||||||||||||||||
Peregrine Health, Inc. | Series A-1 Preferred Stock | N/A | N/A | ||||||||||||||||||||
Total non-controlled / affiliated equity investments | % | ||||||||||||||||||||||
Total Investments | $ | $ | % |
a. |
b. |
c. |
d. |
The accompanying notes are an integral part of these financial statements.
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BIP Ventures Evergreen BDC
Notes to Financial Statements
(unaudited)
Note 1. Organization
BIP Ventures Evergreen BDC (the “Company”) is an externally managed, non-diversified closed-end management investment company that is regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, the Company is taxed as a partnership under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The Company was formed as a Delaware statutory trust on August 10, 2022 and filed its initial registration statement on Form 10 on June 20, 2023.
The Company is managed by BIP Capital, LLC, doing venture capital business as BIP Ventures (the “Investment Adviser”), a Delaware limited liability company and a registered investment adviser under the Investment Advisers Act of 1940, as amended. The Investment Adviser oversees the management of the Company’s activities and is responsible for making investment decisions with respect to the Company’s portfolio.
The Company’s primary investment objective is to maximize capital appreciation. The Company intends to achieve this objective primarily by investing in a portfolio consisting of common and preferred equity investments, including through the use of convertible notes, in U.S.-based portfolio companies, which qualify as “eligible portfolio companies” under the 1940 Act. The Company may also invest on an opportunistic basis in “non-qualifying” investments, such as investments in non-U.S. companies that otherwise meet the Company’s objectives and strategies.
The Company is conducting a continuous and perpetual private offering (the “Private Offering”) of its shares of common beneficial interests, par value of $
per share (the “Shares”), in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Shares are being offered solely to investors that are “accredited investors” as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.
The Shares to be issued under the Private Offering will be unlimited and have a par value of $
. The initial offering price for the Shares was $ per Share. Thereafter, Shares will be sold at the then-current net asset value (“NAV”) per Share.
The Company was initially funded on July 12, 2023, when the Investment Adviser purchased
Note 2. Significant Accounting Policies
The following is a summary of significant accounting policies consistently followed by the Company in the preparation of its financial statements.
Basis of Presentation
The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The Company is an investment company and accordingly applies specific accounting and financial reporting requirements under Financial Accounting Standards Board (“FASB”) Accounting Standards Topic 946, Financial Services-Investment Companies, and pursuant to Regulation S-X.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period, and the accompanying notes thereto. Management believes that the estimates utilized in the preparation of these financial statements are reasonable and prudent. These estimates and assumptions are based on management’s best estimates and judgment. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management adjusts such estimates when facts and circumstances dictate. As future events and their effects cannot be determined with precision, actual results could differ from those estimates, and differences could be material.
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Cash and cash equivalents
Cash and cash equivalents consist of demand deposits and highly liquid investments, such as money market funds, with original maturities of three months or less. Cash and cash equivalents are carried at cost, which approximates fair value. The Company deposits its cash and cash equivalents with high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company up to an insurance limit. The Company sweeps excess cash into a money market treasury fund on a daily basis to reduce the risk that deposits at individual financial institutions exceed the Federal Deposit Insurance Company insurance limit. Cash equivalents in money market mutual funds are fair valued under the market approach through the use of quoted market prices in an active market, which is the NAV of the funds, and are classified within Level 1 of the valuation hierarchy as further described below.
Income Taxes
The Company intends to be treated as a partnership for federal income tax purposes under the Code. Thus, no Federal or State income taxes are payable by the Company. Such taxes are liabilities of the shareholders, and their respective pro-rata share of net income or loss is to be included in their respective income tax returns. Therefore, no provision for income taxes has been made in the accompanying financial statements.
The Investment Adviser intends to operate the Company in a manner intended to satisfy one or more safe harbors under which interests in the Company should not be considered readily tradable on a secondary market (or the substantial equivalent hereof) and to take the position that the Company is not a publicly traded partnership that is taxed as a corporation. Further, if those safe harbors are not satisfied, the Company will not be taxed as a corporation if 90% or more of its gross income each year consists of “qualifying income,” including interest, dividends, capital gains and certain other forms of largely passive income.
Under GAAP, the Company is subject to the provisions of ASC 740, “Income Taxes.” The Company evaluates tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether it is “more-likely-than-not” (i.e., greater than 50%) that each tax position will be sustained upon examination by a taxing authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current period. The Company follows the authoritative guidance on accounting for uncertainty in income taxes and concluded it has no material uncertain tax positions to be recognized at this time. If applicable, the Company will recognize interest and penalties related to unrecognized tax benefits as income tax expense in the Company’s statement of operations. However, management’s conclusions regarding tax positions taken may be subject to review and adjustment at a later date based on factors including, but not limited to, examination by tax authorities, on-going analysis of and changes to tax laws, regulations and interpretations thereof.
Organization and Offering Costs
Organization costs include, among other things, the cost of incorporating the Company and the cost of legal services and other fees pertaining to the Company’s organization. Organization costs are expensed as incurred.
Offering costs consist of costs incurred in connection with the offering of Shares of the Company, including legal fees, registration fees, and other costs pertaining to the preparation of the Company’s registration statement (and any amendments and related documents thereto) relating to the Private Offering. Offering costs are capitalized as a deferred charge and amortized to expense on a straight-line basis over 12 months.
See Note 3 – Related Party Transactions for further information on the Company’s Expense Reimbursement Agreement with the Investment Adviser.
8
Valuation of Investments
The Company values its investments, upon which its NAV is based, in accordance with FASB ASC 820, Fair Value Measurements (“ASC 820”), which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the applicable measurement date. ASC 820 also provides a framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and prescribes disclosure requirements for fair value measurements.
Pursuant to Rule 2a-5 under the 1940 Act, the Company’s Board of Trustees (the “Board”) has designated the Investment Adviser as the valuation designee responsible for valuing all of the Company’s investments, including making fair valuation determinations as needed. The Investment Adviser has established a valuation committee (the “Valuation Committee”) to carry out the ongoing fair valuation responsibilities and has adopted policies and procedures to govern the fair valuation of the Company’s investments.
Investments for which market quotations are readily available are typically valued at the bid price of those market quotations. To validate market quotations, the Investment Adviser utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Investments that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of the Company’s investments, are valued at fair value as determined in good faith by the Investment Adviser, as valuation designee, based on, among other things, the input of the Valuation Committee and independent third-party valuation firm(s).
As part of the valuation process, the Investment Adviser takes into account relevant factors in determining the fair value of the Company’s investments, including, but not limited to:
● | the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company’s debt and equity), |
● | the nature and realizable value of any collateral or expected cash proceeds upon exit, |
● | recent transactions of the portfolio company or peers, |
● | the assessment of the portfolio company in adhering to its business plan, underwriting expectations, and financial projections, |
● | the markets in which the portfolio company does business, |
● | a comparison of the portfolio company’s securities to any similar publicly traded securities, |
● | overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future, and |
● | when an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Investment Adviser considers whether the pricing indicated by the external event corroborates its valuation and may be incorporated into the valuation of the Company’s investments. |
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, the Investment Adviser, as valuation designee, has approved a multi-step valuation process that will be performed on a quarterly basis, as described below:
● | The quarterly valuation process begins with each portfolio company or investment being initially valued by the Investment Adviser in consideration of the factors noted above; |
● | Preliminary valuation conclusions are then documented, discussed with, and reviewed by the Valuation Committee of the Investment Adviser; |
● | Independent valuation firms are engaged by the Investment Adviser to conduct independent reviews to provide positive assurance on a rotational, sample basis by reviewing the Investment Adviser’s valuations and making their own independent assessment; |
9
● | The Investment Adviser discusses valuations and determines in good faith the fair value of each investment in the portfolio based on input of the Valuation Committee and the applicable independent valuation firm; and |
● | The Audit Committee oversees the valuation designee, and will report to the Board on any valuation matters requiring the Board’s attention. |
This valuation process is conducted on a quarterly basis.
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. ASC 820 also provides guidance regarding a fair value hierarchy, which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. In accordance with ASC 820, these inputs are summarized in the three levels listed below:
Level 1 — Valuations are based on unadjusted, quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 — Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
Transfers between levels, if any, are recognized at the beginning of the period in which the transfer occurred. In addition to using the above inputs in investment valuations, the Investment Adviser applies the valuation policy approved by the Company’s Board that is consistent with ASC 820.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss
Investment transactions are recorded on the trade date. The Company will measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, including accrued interest, without regard to unrealized gains or losses previously recognized. Net change in unrealized gain or loss will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gain or loss, when gains or losses are realized.
Revenue Recognition
The Company records interest income on an accrual basis to the extent that it expects to collect such amounts. It does not accrue as a receivable interest on loans and debt securities for accounting purposes if it has reason to doubt its ability to collect such interest.
Recent Accounting Pronouncements
The FASB amended the guidance in ASC 280, Segment Reporting, to require a public entity to disclose significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. Public entities with a single reportable segment are required to provide the new disclosures and all the disclosures required under ASC 280. The guidance applies to all public entities and is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024. The Company is currently evaluating the impact on its financial statements.
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Note 3. Related Party Transactions
The Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) with the Investment Adviser in which the Investment Adviser, subject to the overall supervision of the Company’s Board, manages the day-to-day operations of, and provides investment advisory services to the Company. As part of its advisory and management services, the Investment Adviser will also provide administrative and compliance services to the Company. The Company co-invests from time to time, and intends to continue making co-investments with certain affiliates of the Investment Adviser, where doing so is consistent with the Company’s investment strategy as well as applicable law and SEC staff interpretations.
Investment Advisory Agreement
Pursuant to the Investment Advisory Agreement with the Investment Adviser, the Company expects to pay the Investment Adviser a fee for its services under the Investment Advisory Agreement consisting of two components – a base management fee (“Management Fee”) and an incentive fee (the “Incentive Fee”). The cost of both the base Management Fee and the Incentive Fee will ultimately be borne by the shareholders.
Management Fee:
The Company will pay the Investment Adviser a base Management Fee, quarterly in arrears,
As of March 31, 2024 and for the three months then ended, the Company recorded a base Management Fee expense and payable of $
Incentive Fee:
The Incentive Fee is payable at the end of each calendar year in arrears and equals 20% of cumulative realized capital gains from the date of the Company’s election to be regulated as a BDC to the end of each calendar year, less cumulative net realized capital losses and unrealized capital depreciation, less the aggregate amount of any previously paid Incentive Fee. The Company will accrue quarterly, but will not pay, the Incentive Fee with respect to net unrealized appreciation. The Incentive Fee amount, or the calculations pertaining thereto, as appropriate, will account for any period less than a full calendar year.
In determining the Incentive Fee payable to the Investment Adviser, the Company will calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since the Company’s inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in the Company’s portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since the Company’s inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since the Company’s inception. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable year, the amount of capital gains that serves as the basis for the Company’s calculation of the Incentive Fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate unrealized capital depreciation, with respect to the Company’s portfolio of investments.
The Company has recorded an Incentive Fee of $
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Expense Support and Conditional Reimbursement Agreement
The Company entered into an Expense Support and Conditional Reimbursement Agreement with the Investment Adviser, whereby the Investment Adviser has agreed to pay all of the Company’s organization and offering costs related to the Private Offering of its Shares. The Company has agreed to reimburse the Investment Adviser for such advanced expenses up to $
As of March 31, 2024, the Investment Adviser has incurred reimbursable organizational expenses and offering costs of $
Co-Investment Activity
On March 5, 2024, the Company and the Investment Adviser received an exemptive order from the SEC (the “Order”) that permits the Company to, among other things, co-invest with certain other persons, including certain affiliates of the Investment Adviser and certain funds managed and controlled by the Investment Adviser and its affiliates, subject to certain terms and conditions. Negotiated co-investments may be made by the Company only in accordance with the Order. Non-negotiated co-investments may be made by the Company only in accordance with the conditions set forth in the no-action letter, dated June 7, 2000, issued by the SEC’s Division of Investment Management to Massachusetts Mutual Life Insurance Company (the “MassMutual No Action Letter”). For a co-investment transaction subject to the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of the Company’s independent trustees must be able to reach certain conclusions in connection with such co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to the Company and its shareholders and do not involve overreaching in respect of the Company or its shareholders on the part of any person concerned, and (2) the transaction is consistent with the interests of the Company’s shareholders and is consistent with the Company’s then-current investment objectives and strategies. In certain situations where a potential co-investment with one or more funds managed by the Investment Adviser or its affiliates is not permitted by the Order or in reliance on the MassMutual No Action Letter, the personnel of the Investment Adviser or its affiliates will decide which fund will proceed with the investment. Such personnel will make these determinations based on allocation policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. Co-investments made pursuant to the Order or in reliance on the MassMutual No Action Letter are subject to certain terms and conditions, so there can be no assurance that the Company will be permitted to co-invest with certain of its affiliates other than in the circumstances currently permitted by regulatory guidance or the Order.
During the three months ended March 31, 2024,
the Company made an investment of $
Note 4. Investments
In accordance with the provisions of the 1940 Act, the Company classifies investments by level of control. As defined in the 1940 Act, “Controlled Investments” are investments in those companies that the Company is deemed to “Control.” “Affiliated Investments” are investments in those companies that are “Affiliated Persons” of the Company, as defined in the 1940 Act, other than Control Investments. “Non-Controlled / Non-Affiliated Investments” are those that are neither Controlled Investments nor Affiliated Investments. Generally, under the 1940 Act, the Company is deemed to control a company in which it has invested if the Company owns more than 25.0% of the voting securities (i.e., securities with the right to elect directors) and/or has the power to exercise control over the management or policies of such portfolio company. Generally, under the 1940 Act, “Affiliated Investments” that are not otherwise “Controlled Investments” are defined as investments in which the Company owns at least 5.0%, up to 25.0% (inclusive), of the voting securities and does not have the power to exercise control over the management or policies of such portfolio company. Generally, under the 1940 Act, “Non-Controlled / Non-Affiliated Investments” are defined as investments in which the Company owns less than 5.0% of the voting securities of such portfolio company.
12
The composition of the Company’s investment portfolio at cost and fair value was as follows:
March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
Cost | Fair Value | % of Total Investments at Fair Value |
Cost | Fair Value | % of Total Investments at Fair Value |
|||||||||||||||||||
Senior secured convertible notes | $ | $ | % | $ | $ | % | ||||||||||||||||||
Preferred stock investments | % | % | ||||||||||||||||||||||
Total | $ | $ | % | $ | $ | % |
Refer to Note 5. Fair Value Measurements for additional information on the fair value of the Company’s investments.
The industry composition of investments at fair value was as follows:
March 31, 2024 |
December 31, 2023 |
|||||||
Enterprise SaaS | % | % | ||||||
Healthcare | % | % | ||||||
Total | % | % |
As of March 31, 2024 and for the three months ended March 31, 2024, the Company had the following portfolio companies that individually accounted for 10% or more of the Company’s aggregate total assets or investment income:
Portfolio Company | Percentage of Total Investment Income |
Percentage of Total Assets |
||||||
Mediafly, Inc. | % | % |
The portfolio company is required to pay the cumulative accrued interest on the senior secured convertible note, along with the principal, at the maturity date. Failure of this portfolio company to pay contractual interest payments could have a material adverse effect on the Company’s results of operations and cash flows from operations which would impact its ability to make distributions to shareholders in the future.
Transactions related to investments in non-controlled / affiliated companies for the three months ended March 31, 2024 were as follows:
Portfolio Company | Type of Asset | Fair value as of December 31, 2023 | Gross Additions | Gross Reductions | Change in Unrealized Gains (Losses) | Fair value as of March 31, 2024 | Dividend and Interest Income | |||||||||||||||||||
Non-Controlled / Affiliated Investments | ||||||||||||||||||||||||||
Peregrine Health, Inc. | Preferred stock investments | $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Total Investments | $ | $ | $ | $ | $ | $ | - |
13
Note 5. Fair Value Measurements
The Company’s investments were categorized in the fair value hierarchy described in Note 2 – Significant Accounting Policies.
The following is a summary of the inputs used, as of March 31, 2024 and December 31, 2023, involving the Company’s assets carried at fair value. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities.
March 31, 2024 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Senior secured convertible notes | $ | $ | $ | $ | ||||||||||||
Preferred stock investments | ||||||||||||||||
Total investments before cash equivalents | $ | $ | $ | $ | ||||||||||||
Money market treasury fund | ||||||||||||||||
Total investments after cash equivalents | $ | $ | $ | $ |
December 31, 2023 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Senior secured convertible notes | $ | $ | $ | $ | ||||||||||||
Preferred stock investments | ||||||||||||||||
Total investments before cash equivalents | $ | $ | $ | $ | ||||||||||||
Money market treasury fund | ||||||||||||||||
Total investments after cash equivalents | $ | $ | $ | $ |
The following tables provide a reconciliation of the beginning and ending balances for investments for which fair value was determined using Level 3 inputs for the three months ended March 31, 2024:
For the Three Months Ended March 31, 2024 | ||||||||||||
Senior secured convertible notes |
Preferred stock investments |
Total Investments |
||||||||||
Fair value, beginning of period | $ | $ | $ | |||||||||
Purchases of investments | ||||||||||||
Net change in unrealized gain (loss) | ||||||||||||
Fair value, end of period | $ | $ | $ | |||||||||
Net change in unrealized gain (loss) included in earnings related to financial instruments held as of March 31, 2024 | $ | $ | $ |
14
The following provides information on Level 3 investments held by the Company that were valued at March 31, 2024, and December 31, 2023, based on unobservable inputs.
Fair Value as of March 31, 2024 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average)1 |
Impact to Valuation from an Increase in Input2 |
||||||||||||
Senior secured convertible notes | $ | |||||||||||||||
Preferred stock investments | N/A | N/A | ||||||||||||||
Preferred stock investments | ||||||||||||||||
Total | $ |
1 |
2 |
3 |
Fair Value as of December 31, 2023 |
Valuation Technique |
Unobservable Input |
Range (Weighted Average)1 |
Impact to Valuation from an Increase in Input2 |
||||||||||||
Senior secured convertible notes | $ | |||||||||||||||
Preferred stock investments | ||||||||||||||||
Total | $ |
1 |
2 |
15
Note 6. Commitments and Contingencies
In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications or warranties. Future events could occur that lead to the execution of these provisions against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications as of March 31, 2024 or December 31, 2023.
Additionally, from time to time, the Investment Adviser may commit to an investment on behalf of the investment vehicles it manages, including the Company. Certain terms of these investments are not finalized at the time of the commitment and the Company’s allocation may change prior to the date of funding. In this regard, as of March 31, 2024, the Company had $
See Note 3 – Related Party Transactions for further information on the Company’s Expense Reimbursement Agreement with the Investment Adviser.
Note 7. Borrowings
As of March 31, 2024 and December 31, 2023, the Company has not entered into any credit facilities or engaged in any borrowing transactions.
Note 8. Net Assets
In connection with its formation, the Company has the authority to issue an unlimited number of Shares at $0.01 per share par value. On July 12, 2023, the Investment Adviser purchased
The following table summarizes transactions in Shares for the three months ended March 31, 2024:
For the Three Months Ended March 31, 2024 |
||||||||
Shares | Amount | |||||||
Shares | ||||||||
Subscriptions | $ | |||||||
Net increase (decrease) | $ |
The following table summarizes transactions in Shares for the period from July 13, 2023 (“Commencement of Operations”) through December 31, 2023:
For the period July 13, 2023 (“Commencement of Operations”) through December 31, 2023 |
||||||||
Shares | Amount | |||||||
Shares | ||||||||
Subscriptions | $ | |||||||
Net increase (decrease) | $ |
16
Net Asset Value per Share and Offering Price
Subscriptions will be accepted on a continuous basis and Shares will be issued at periodic closings at a per-share price generally equal to the Company’s quarterly NAV per Share as determined by the Board (including any committee thereof). The Company intends to issue Shares on a quarterly basis, subject to consideration of the investment opportunities that arise.
The following table summarizes each NAV per Share at which subscription closings occurred during the life-to-date period for Shares of beneficial interest as of the dates listed below:
NAV Per Share | ||||
As of | Shares | |||
July 12, 2023 | $ | |||
August 24, 2023 | $ | |||
September 30, 2023 | $ | |||
December 31, 2023 | $ | |||
March 31, 2024 | $ |
Distributions
The Company did not make any cash distributions to its shareholders for the three months ended March 31, 2024 or for the period from July 13, 2023 (“Commencement of Operations”) through December 31, 2023.
Share Repurchase Program
The Company does not intend to list its Shares on a securities exchange and does not expect there to be a public market for its Shares.
Three years after the date on which the Company broke escrow for the initial Private Offering of Shares, which was on August 24, 2023, and at the discretion of the Board, the Company intends to commence a share repurchase program in which it intends to repurchase annually between 4% and 9% of outstanding Shares (by number of Shares). Under the share repurchase program, to the extent the Company offers to repurchase Shares during an annual period, the Company expects to repurchase Shares pursuant to tender offers as of the applicable quarter-end using a purchase price equal to the NAV per Share as of the last calendar day of the applicable quarter, except that Shares that have not been outstanding for at least one year will be repurchased at 98% of such NAV (an “Early Repurchase Deduction”). The Early Repurchase Deduction will be retained by the Company for the benefit of remaining shareholders. The repurchase request period will be 20 days after the repurchase offer has been announced. The repurchase of Shares will not occur until at least 60 days after the shareholder has notified the Company in writing of their intention to tender. Further, the repurchase price will not be established until at least 60 days after receipt of the shareholder’s intention to tender.
The Board may amend or suspend the share repurchase program if in its reasonable judgment it deems such action to be in the Company’s best interest and the best interest of its shareholders, such as when a repurchase offer would place an undue burden on liquidity, adversely affect operations or risk having an adverse impact on the Company that would outweigh the benefit of the repurchase offer. As a result, Share repurchases may not be available annually. Should the Board suspend the share repurchase program, the Board will consider whether the continued suspension of the program is in the best interests of the Company and shareholders on a quarterly basis. The Company intends to conduct such repurchase offers in accordance with the requirements of Rule 13e-4 promulgated under the Securities Exchange Act of 1934, as amended, and the 1940 Act.
The Company did not make any share repurchases for the three months ended March 31, 2024 or for the period from July 13, 2023 (“Commencement of Operations”) through December 31, 2023.
17
Note 9. Financial Highlights
The financial highlights for the three months ended March 31, 2024 are as follows:
For the Three Months Ended March 31, 2024 |
||||
Common Shares | ||||
Per Share Activity | ||||
Net asset value, beginning of period | $ | |||
Net investment income (loss)1 | ||||
Net realized and unrealized gain (loss)1 | ||||
Net increase (decrease) in net assets resulting from operations | ||||
Net asset value, end of period | $ | |||
Total return2 | % | |||
Number of Shares outstanding as of March 31, 2024 | ||||
Ratios to Average Net Assets: | ||||
Net assets, end of period | $ | |||
Ratio of net investment income (loss) to average net assets3 | % | |||
Ratio of total expenses to average net assets3 | % | |||
Ratio of total expenses, excluding incentive fees3 | % | |||
Portfolio turnover4 | % |
1 |
2 |
3 |
4 |
Note 10. Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the filing of this Quarterly Report on Form 10-Q. The following subsequent events were identified for disclosure:
Share Issuance
As of April 1, 2024, the Company sold
Investments
On April 18, 2024, the Company funded an additional investment of $
There are no other subsequent events to disclose.
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information contained in this section should be read in conjunction with “Item 1. Financial Statements” hereto and “Part II, Item 8—Financial Statements and Supplementary Data” of our Annual Report on Form 10-K for the year ended December 31, 2023, as updated from time to time by the Company’s periodic filings with the Securities and Exchange Commission (“SEC”). This discussion contains forward-looking statements and involves numerous risks, uncertainties, and other factors outside the Company’s control, including, but not limited to, those set forth in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 as updated by the Company’s periodic filings with the SEC.
Overview
BIP Ventures Evergreen BDC (the “Company,” “we,” “us,” or “our”) is an externally managed, non-diversified closed-end management investment company focused on investing in a portfolio consisting of common and preferred equity investments, including convertible notes, in target U.S.-based portfolio companies, which qualify as “eligible portfolio companies” under the 1940 Act. The Company has elected to be regulated as a BDC under the 1940 Act. In addition, for tax purposes, the Company intends to be taxed as a partnership under the Code.
The Company intends to achieve its investment objectives by investing at least 70% of the Company’s total assets (including the amount of borrowings for investment purposes) in portfolio companies that qualify as eligible portfolio companies under the 1940 Act, with its core focus on investments in software as a service (“SaaS”) companies operating within the healthcare, media, and technology sectors. The Company may also invest in other strategies and opportunities from time to time that it views as attractive.
The Company anticipates conducting one or more private placements of its Shares to investors in reliance on exemptions from the registration requirements of the Securities Act. The Company expects to enter into separate Subscription Agreements with a number of investors in each Private Offering. Subscriptions will be effective only upon the Company’s acceptance, and the Company reserves the right to reject any subscription in whole or in part. All purchases will be made at a per-Share price as determined by the Board (including any committee thereof). The per-Share price shall be at least equal to the NAV per Share. The Board (including any committee thereof) may set the per-Share price above the NAV per share based on a variety of factors, including, without limitation, to ensure that investors acquiring Shares in the Company after other investors have already done so are apportioned their pro rata portion of the Company’s organizational and offering expenses.
The Company was initially funded on July 12, 2023 when the Investment Adviser purchased 400 shares of common beneficial interests, par value of $0.01 per Share, of the Company, for an aggregate purchase price of $10,000. The Company completed its initial closing of capital commitments on August 24, 2023 and subsequently broke escrow and commenced investment activity. As part of the initial close, the Company issued 1,389,142 Shares for total proceeds of $34,728,548 as payment for such Shares.
Key Components of Our Results of Operations
Investments
We invest primarily in common and preferred equity investments, including convertible notes, in U.S.-based private companies in sectors including, but not limited to, healthcare IT, fintech, enterprise SaaS, software tools, frontier technology, media technology, and technology-enabled marketplaces.
The Company’s level of investment activity can and is expected to vary substantially from period to period depending on many factors, including the amount of capital available to target portfolio companies, the general economic environment, and the competitive environment for the type of investments we make.
19
Revenues
The Company generates revenue primarily in the form of capital gains on our equity investments in our portfolio companies. We also generate revenue in the form of interest or dividends on these investments as well as interest earned on cash and cash equivalents held at financial institutions.
Expenses
Operating Expenses
The Investment Adviser shall bear its own costs incurred in providing investment advisory services to the Company, including all personnel expenses. The Company will be responsible for all costs and expenses relating to the Company’s activities, investments and ongoing business, including:
● | all costs and expenses attributable to acquiring or originating, holding, and disposing of investments; |
● | the actual costs incurred by the Investment Adviser or third party engaged by the Investment Adviser in connection with management and servicing of the Company’s investments, as applicable, provided that the Company’s responsibility for such costs shall be limited to an amount that is usual and customary for the provision of such services in the geographic area of the investment, as applicable; |
● | legal, accounting, auditing, banking, consulting, and other fees and expenses, including reimbursement to the Investment Adviser for the cost of specific services provided by the Investment Adviser or its affiliates, which would otherwise be provided by third party experts such as tax and legal services; |
● | all reasonable out-of-pocket fees and expenses incurred by the Company, the Investment Adviser, or their respective affiliates, partners, agents, officers, and employees relating to the investigation of investment, syndication, and investment repayment opportunities for the Company, whether or not consummated, and the fees and expenses of due diligence associated therewith; |
● | the fees payable to the Investment Adviser, or any of their respective affiliates for services provided, including the base management fee and incentive fee; |
● | any taxes, fees, and other governmental charges levied against the Company; and |
● | all other expenses incurred by the Investment Adviser or any of its affiliates in connection with administering the Company’s business, including expenses incurred by the Investment Adviser, or any of its affiliates in performing administrative services for the Company, and the cost of any third-party service providers, including any sub-administrator, transfer agent, or custodian engaged to assist the Investment Adviser or any of its affiliates with the provision of administrative services for the Company or on the Company’s behalf. |
From time to time, the Investment Adviser may pay third-party providers of goods or services. The Company will reimburse the Investment Adviser for any such amounts paid on the Company’s behalf.
Expense Support and Conditional Reimbursement Agreement
The Company entered into an Expense Support and Conditional Reimbursement Agreement with the Investment Adviser, whereby the Investment Adviser has agreed to pay all of the Company’s organization and offering costs related to the Private Offering of its Shares. The Company has agreed to reimburse the Investment Adviser for such advanced expenses up to $500,000 when the Company has raised $250 million from unaffiliated subscribers.
20
As of March 31, 2024, the Investment Adviser has incurred reimbursable organizational expenses and offering costs of $364,014 and $135,986, respectively, that will be payable when the Company has raised $250 million of capital. As the Company has not raised capital of $250 million as of March 31, 2024, reimbursement of organization and offering costs was deemed not probable and therefore, is not recorded as a liability. These costs were incurred by the Investment Adviser prior to the Commencement of Operations and as such, are not presented on the statement of operations as an expense and corresponding waiver of expense for the three months ended March 31, 2024.
Portfolio and Investment Activity
For the three months ended March 31, 2024, the Company acquired $6.1 million aggregate principal amount of investments as further described below. The initial portfolio is seeded with promising early investments and the pipeline is robust.
On February 27, 2024, the Company made a follow-on investment of $1.1 million into Peregrine Health, Inc.’s preferred Series A-2 equity financing round. Peregrine Health operates brick-and-mortar treatment centers and a telehealth network that together aim to provide the full continuum of care for mental health patients across the United States. Peregrine Health began exiting the brick-and-mortar treatment center business in February 2024 given the revenue volatility in that business segment, focusing solely on the growing telehealth business going forward. The Company and other investors funded a bridge round that repriced the Peregrine Series A to right size the valuation to the go-forward, telehealth only Peregrine business. As part of this transaction, the Company’s prior investment was converted from Series A-1 to Series A-2.
On March 21, 2024, the Company made an investment of $5.0 million into CareSave Technologies, Inc.’s (d/b/a ShiftMed) preferred Series E-2 equity financing round as part of a co-investment transaction with an affiliated fund. ShiftMed is a healthcare platform designed to connect caregivers / nurses with in-home and skilled nursing facilities. The platform makes it easier for facilities to staff shifts which drives compliance and quality. ShiftMed has continued to grow revenue in Q1 2024 and year-over-year across both their acute and post-acute business lines. The business expects to close a highly strategic acquisition in the post-acute space and continues to sign large hospital systems as customers in the acute market. Given this momentum, as of March 31, 2024, the Company has committed but not yet funded an additional investment of $7.0 million into CareSave Technologies, Inc. (d/b/a ShiftMed) as part of this co-investment transaction, which will bring the total invested to $12.0 million.
The Company continues to hold investments of $45.0 million in senior secured convertible notes in Mediafly, Inc. Mediafly, Inc. is a comprehensive revenue enablement platform for large enterprises. The convertible notes have an interest rate of 10% and mature on March 1, 2025. The Company recorded accrued interest of $1.1 million on these notes for the three months ended March 31, 2024.
Our investment activity is presented below (information presented herein is at amortized cost unless otherwise indicated):
For the Three Months Ended March 31, 2024 |
||||
Investments: | ||||
Total investments, beginning of period | $ | 49,756,904 | ||
New investments purchased | 6,124,441 | |||
Investments sold | - | |||
Total Investments, End of Period | $ | 55,881,345 | ||
Number of portfolio companies | 3 | |||
Weighted average yield on convertible notes, at cost | 10.0 | % | ||
Weighted average yield on convertible notes, at fair value | 10.0 | % |
21
The weighted average yield of our income producing investments is not the same as a return on investment for our shareholders but, rather, relates to our investment portfolio and is calculated before the payment of all of our fees and expenses. The weighted average yield was computed using the effective interest rates as of each respective date. There can be no assurance that the weighted average yield will remain at its current level.
Our investments consisted of the following:
March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
Cost | Fair Value | % of Total Investments at Fair Value |
Cost | Fair Value | % of Total Investments at Fair Value |
|||||||||||||||||||
Senior secured convertible notes | $ | 45,000,000 | $ | 48,010,841 | 79.9 | % | $ | 45,000,000 | $ | 47,827,750 | 91.6 | % | ||||||||||||
Preferred stock investments | 10,881,345 | 12,084,295 | 20.1 | % | 4,756,904 | 4,368,028 | 8.4 | % | ||||||||||||||||
Total | $ | 55,881,345 | $ | 60,095,136 | 100.0 | % | $ | 49,756,904 | $ | 52,195,778 | 100.0 | % |
The industry composition of investments at fair value was as follows:
March 31, 2024 |
December 31, 2023 |
|||||||
Enterprise SaaS | 79.9 | % | 91.6 | % | ||||
Healthcare | 20.1 | % | 8.4 | % | ||||
Total | 100.0 | % | 100.0 | % |
The geographic composition of investments at fair value was as follows:
March 31, 2024 | December 31, 2023 | |||||||||||||||||||||||
Cost | Fair Value | % of Total Investments at Fair Value |
Cost | Fair Value | % of Total Investments at Fair Value |
|||||||||||||||||||
United States | $ | 55,881,345 | $ | 60,095,136 | 100.0 | % | $ | 49,756,904 | $ | 52,195,778 | 100.0 | % | ||||||||||||
Total | $ | 55,881,345 | $ | 60,095,136 | 100.0 | % | $ | 49,756,904 | $ | 52,195,778 | 100.0 | % |
The Investment Adviser monitors our portfolio companies on an ongoing basis, including financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action with respect to each portfolio company. The Investment Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
● | assessment of success of the portfolio company in adhering to its business plan, underwriting expectations, and financial projections; |
● | periodic and regular contact with portfolio company management to discuss financial position, requirements and accomplishments; |
● | participation at Board meetings through a designated seat or as an observer; |
● | comparisons to other companies in the portfolio company’s industry; and |
● | review of monthly or quarterly financial statements and financial metrics for portfolio companies. |
22
Results of Operations
The following table represents the operating results for the three months ended March 31, 2024:
For the Three Months Ended March 31, 2024 |
||||
Total investment income | $ | 1,253,711 | ||
Net expenses | 909,709 | |||
Net investment income | 344,002 | |||
Net unrealized gain (loss) | 1,774,917 | |||
Net realized gain (loss) | - | |||
Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 2,118,919 |
Net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including the level and type of new investment commitments, expenses, the recognition of realized gains and losses, and changes in unrealized gains and losses on the investment portfolio. As a result, comparisons may not be meaningful.
Investment Income
Investment income for the three months ended March 31, 2024 was as follows:
For the Three Months Ended March 31, 2024 |
||||
Interest income | $ | 1,253,711 | ||
Total Investment Income | $ | 1,253,711 |
For the three months ended March 31, 2024, total investment income was $1,253,711, the majority of which was driven by accrued interest on the senior secured convertible note investments.
Expenses
Expenses were as follows:
For the Three Months Ended March 31, 2024 |
||||
Management fees | $ | 262,272 | ||
Incentive fees | 354,983 | |||
Professional fees | 160,982 | |||
Board of Trustees’ fees | 65,740 | |||
Administration fees | 34,431 | |||
Other general and administrative expenses | 31,301 | |||
Total expenses | $ | 909,709 |
23
Management Fees
For the three months ended March 31, 2024, management fees were $262,272. Management fees are payable quarterly in arrears at an annual rate of: (i) 1.75% of the Company’s average net assets if the Company’s total net asset balance is less than $500,000,000; and (ii) 1.50% of the Company’s average net assets if the Company’s total net asset balance is equal to or greater than $500,000,000. The average net asset balance will be the average of our total net assets at the end of the two most recently completed calendar quarters.
Incentive Fees
For the three months ended March 31, 2024, incentive fees were $354,983. The Incentive Fee is payable at the end of each calendar year in arrears and equals 20% of cumulative realized capital gains from the date of the Company’s election to be regulated as a BDC to the end of each calendar year, less cumulative net realized capital losses and unrealized capital depreciation, less the aggregate amount of any previously paid Incentive Fee. The Company accrues quarterly, but will not pay, the Incentive Fee with respect to net unrealized appreciation. The Incentive Fee amount, or the calculations pertaining thereto, as appropriate, will account for any period less than a full calendar year.
Other Expenses
Professional fees include legal, audit, tax, and valuation fees incurred related to the management and reporting of the Company. Administration fees include transfer agent and legal administration services. Other general and administrative expenses include custody fees and insurance costs.
The Company entered into an Expense Support and Conditional Reimbursement Agreement with the Investment Adviser. For additional information, see Note 3 – Related Party Transactions.
Income Taxes
The Company has elected to be taxed as a partnership. As a partnership, it generally will not have to pay corporate-level federal income taxes on any net ordinary income or net capital gains that are allocated to our shareholders from our tax earnings and profits. For the three months ended March 31, 2024, the Company did not incur any U.S. federal income taxes.
Net Change in Unrealized Gain (Loss)
We fair value our portfolio investments quarterly and any changes in fair value are recorded as unrealized gains or losses. Net change in unrealized gain (loss) was composed of the following:
For the Three Months Ended March 31, 2024 |
||||
Net change in unrealized gain (loss) on investments | $ | 1,774,917 | ||
Net Unrealized Gain (Loss) on Investments | $ | 1,774,917 |
The net change in unrealized gains for the three months ended March 31, 2024 was due to the appreciation of value in the Company’s portfolio investments.
24
Financial Condition, Liquidity and Capital Resources
The Company generates cash primarily from the proceeds of any offering of Shares and from cash flows from proceeds from sales of its investments. It may also fund a portion of its investments through borrowings from banks and issuances of senior securities, including before it has fully invested the proceeds of the Private Offering. While credit facilities are permitted to be utilized, we do not expect them to be a large portion of the funding of investments. The primary use of cash will be investments in portfolio companies, payments of expenses and payment of cash distributions to shareholders.
Net Assets
In connection with the formation, the Company has the authority to issue unlimited common shares, $0.01 per Share par value. On July 12, 2023, the Investment Adviser purchased 400 Shares to capitalize the Company. On August 24, 2023, the Company accepted subscription requests, broke escrow, and commenced investment activities.
The following table sets forth Share issuances life-to-date through the period ended March 31, 2024.
NAV | Shares | Amount | ||||||||||
July 12, 2023 | $ | 25.00 | 400 | $ | 10,000 | |||||||
August 24, 2023 | $ | 25.00 | 1,389,142 | $ | 34,728,548 | |||||||
October 1, 2023 | $ | 25.58 | 644,663 | $ | 16,490,475 | |||||||
January 1, 2024 | $ | 26.42 | 380,003 | $ | 10,039,676 |
No distributions or repurchases occurred during the three months ended March 31, 2024. The Company intends to offer a share repurchase program beginning in 2026. See Note 8 – Net Assets.
Borrowings
The Company does not have any debt obligations nor any preferred shares as of March 31, 2024 or December 31, 2023. As such, the Company is in compliance with the 200% asset coverage requirement under the 1940 Act.
Off-Balance Sheet Arrangements
From time to time, the Investment Adviser may commit to an investment on behalf of the investment vehicles it manages, including the Company. Certain terms of these investments are not finalized at the time of the commitment and each respective investment vehicle’s allocation may change prior to the date of funding. In this regard, as of March 31, 2024, the Company had $7 million of investments that are committed but not yet funded. As of December 31, 2023, the Company had no investments that were committed but not yet funded.
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of our business. As of March 31, 2024 and December 31, 2023, management was not aware of any pending or threatened litigation.
Related Party Transactions
We have entered into business relationships with affiliated or related parties, including the following:
● | the Investment Advisory Agreement |
● | the Expense Support and Conditional Reimbursement Agreement |
See Note 3 – Related Party Transactions.
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Recent Developments
Subscriptions
As of April 1, 2024, the Company sold 313,506 Shares at a NAV price of $27.30 per share (with the final number of Shares being determined on April 16, 2024) to accredited investors in a private placement of Shares for an aggregate purchase price of $8,558,720.
NAV | Shares | Amount | ||||||||||
April 1, 2024 | $ | 27.30 | 313,506 | $ | 8,558,720 |
Investment Activity
On April 18, 2024, the Company funded an additional investment of $7.0 million into CareSave Technologies, Inc.’s (d/b/a ShiftMed) preferred Series E-2 equity financing round, as part of the same co-investment transaction that occurred on March 21, 2024.
Critical Accounting Estimates
The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Change in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ.
Valuation of Investments
The Company values its investments, upon which its NAV is based, in accordance with FASB ASC 820, Fair Value Measurements (“ASC 820”), which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the applicable measurement date. ASC 820 also provides a framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and prescribes disclosure requirements for fair value measurements.
Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated the Investment Adviser as the valuation designee responsible for valuing all of the Company’s investments, including making fair valuation determinations as needed. The Investment Adviser has established a valuation committee (the “Valuation Committee”) to carry out the ongoing fair valuation responsibilities and has adopted policies and procedures to govern the fair valuation of the Company’s investments.
Investments for which market quotations are readily available are typically valued at the bid price of those market quotations. To validate market quotations, we utilize a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Investments that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of our investments, are valued at fair value as determined in good faith by the Investment Adviser, as valuation designee, based on, among other things, the input of the Valuation Committee and independent third-party valuation firm(s).
As part of the valuation process, the Investment Adviser takes into account relevant factors in determining the fair value of our investments, including, but not limited to:
● | the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company’s debt and equity), |
● | the nature and realizable value of any collateral or expected cash proceeds upon exit, |
● | recent transactions of the portfolio company or peers, |
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● | the assessment of the portfolio company in adhering to its business plan, underwriting expectations, and financial projections, |
● | the markets in which the portfolio company does business, |
● | a comparison of the portfolio company’s securities to any similar publicly traded securities, |
● | overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future, and |
● | when an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Investment Adviser considers whether the pricing indicated by the external event corroborates its valuation and may be incorporated into the valuation of our investments. |
With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, the Investment Adviser, as valuation designee, has approved a multi-step valuation process that will be performed on a quarterly basis, as described below:
● | The quarterly valuation process begins with each portfolio company or investment being initially valued by the Investment Adviser in consideration of the factors noted above; |
● | Preliminary valuation conclusions are then documented, discussed with, and reviewed by the Valuation Committee of the Investment Adviser; |
● | Independent valuation firms are engaged by the Investment Adviser to conduct independent reviews to provide positive assurance on a rotational, sample basis by reviewing the Investment Adviser’s valuations and making their own independent assessment; |
● | The Investment Adviser discusses valuations and determines in good faith the fair value of each investment in the portfolio based on input of the Valuation Committee and the applicable independent valuation firm; and |
● | The Audit Committee oversees the valuation designee, and will report to the Board on any valuation matters requiring the Board’s attention. |
This valuation process is conducted on a quarterly basis.
ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. ASC 820 also provides guidance regarding a fair value hierarchy, which prioritizes information used to measure fair value and the effect of fair value measurements on earnings and provides for enhanced disclosures determined by the level within the hierarchy of information used in the valuation. In accordance with ASC 820, these inputs are summarized in the three levels listed below:
Level 1 — Valuations are based on unadjusted, quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.
Level 2 — Valuations are based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
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Transfers between levels, if any, are recognized at the beginning of the period in which the transfer occurred. In addition to using the above inputs in investment valuations, we apply the valuation policy approved by our Board that is consistent with ASC 820.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
Our accounting policy regarding the fair value of our investments is critical because the determination of fair value involves subjective judgments and requires the use of estimates. Due to the inherent uncertainty of determining fair value measurements, the fair values of our investments may differ from the amounts that we ultimately realize or collect from sales or maturities of our investments, and the differences could be material. In addition, changes in the market environment and other events that may occur over the life of an investment may cause the gains or losses ultimately realized on our investments to be different than the unrealized gains or losses reflected herein.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including valuation risk and interest rate risk.
Valuation Risk
We have invested, and plan to continue to invest, primarily in illiquid equity and debt securities of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by the Investment Adviser, based on, among other things, input from independent third-party valuation firms engaged to review our investments. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we are required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on our investments to be different than the unrealized gains or losses reflected in the valuations currently recorded.
Interest Rate Risk
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates, including changes due to inflation. Our current portfolio of investments includes fixed rate convertible notes and are short-term in nature. We do not have any debt obligations as of March 31, 2024 or December 31, 2023. Significant changes in interest rates could impact the ability of our portfolio companies to meet their debt obligations or could impact our ability to negotiate transactions, both positively and negatively.
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Item 4. Controls and Procedures
(a) | Evaluation of Disclosure Controls and Procedures |
In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.
Based on that evaluation, we, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic Securities and Exchange Commission (the “SEC”) filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.
(b) | Changes in Internal Controls Over Financial Reporting |
There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Neither the Company nor the Investment Adviser is currently subject to any material legal proceedings, nor, to the Company’s knowledge, is any material legal proceeding threatened against the Company or the Investment Adviser.
From time to time, the Company or the Investment Adviser may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of the Company’s rights under contracts with the Company’s portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, the Company does not expect that these proceedings will have a material effect upon the Company’s financial condition or results of operations.
Item 1A. Risk Factors
There have been no material changes to the risk factors discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except as previously reported by the Company on its current reports on Form 8-K, the Company did not sell any securities during the period covered by this report that were not registered under the Securities Act.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits.
* | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BIP Ventures Evergreen BDC | |||
By: | /s/ Mark Buffington | ||
Name: | Mark Buffington | ||
Title: | Chief Executive Officer and Chairman of the Board of Trustees |
Date: May 9, 2024
BIP Ventures Evergreen BDC | |||
By: | /s/ Todd Knudsen | ||
Name: | Todd Knudsen | ||
Title: | Chief Financial Officer |
Date: May 9, 2024
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